Fitch: Nene's Exit Raises South Africa Fiscal Policy Questions

(The following statement was released by the rating agency)
LONDON, December 10 (Fitch) The replacement of Nhlanhla Nene as
South Africa's
Finance Minister increases uncertainty about fiscal policy and
contingent
liabilities from state-owned companies, although it is unclear
at this stage
whether this will result in significant policy changes, Fitch
Ratings says.
President Jacob Zuma said on Wednesday that David van Rooyen
will replace Nene,
who had been Minister of Finance since May 2014. No reason was
given for the
change, although the president said that Nene would fill
"another strategic
position."
The surprise announcement, coupled with the lack of clarity on
why Nene was
replaced or the preferred policies of his relatively
inexperienced successor,
inevitably raises questions about the motivation for the change
in personnel and
the implications for economic policy.
Van Rooyen is a member of parliament, has served as a whip of
the parliamentary
committee on finance, has held various ANC leadership positions
and has an MSc
in finance, but is less experienced in policy-making than Nene,
who had built up
a reputation for fiscal conservatism in difficult economic
times.
The change would be relevant to our sovereign rating assessment
if it led to a
loosening of fiscal policy, such as an upward revision to the
government's
nominal expenditure ceilings, and a faster increase in
government indebtedness.
We identified looser fiscal policy that resulted in a failure to
stabilise the
ratio of government debt/GDP as a rating sensitivity when we
downgraded South
Africa to 'BBB-'/Stable last week.
It would also be relevant if it led to a weakening in
transparency and financial
management in state-owned companies, which represent a
contingent liability to
the sovereign. Nene had opposed procurement plans by South
African Airways, and
there has been speculation in the press that he was cautious on
proposed plans
for a nuclear power building programme. The government has
contingent
liabilities equivalent to 11.5% of GDP, mainly in the form of
potential
guarantees to SOEs, of which issued guarantees are around 5.5%
of GDP.
The main driver of our downgrade was further weakening in GDP
growth performance
and potential. This has pushed up gross general government debt
to GDP, which
will increase to 51% at end 2015/2016, nearly double the level
of 2008/2009.
Weaker growth has made it difficult to reduce the budget deficit
and stabilise
debt/GDP, but the South African Treasury has stuck to its
nominal non-interest
expenditure ceiling since 2012. This commitment to abide by
spending ceilings
set several years in advance has provided an important anchor
for fiscal policy.
We discussed the outlook for sub-Saharan Africa at a series of
events in Europe
this week, concluding in London this morning. Details and
presentations are
available at www.fitchratings.com.
Contact:
Ed Parker
Managing Director
Sovereigns
+44 20 3530 1176
Fitch Ratings Ltd
30 North Colonnade
London E14 5GN
Mark Brown
Senior Director
Fitch Wire
+44 20 3530 1588
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
1103, Email:
peter.fitzpatrick@fitchratings.com.
The above article originally appeared as a post on the Fitch
Wire credit market
commentary page. The original article can be accessed at
www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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